I'm posting the most interesting parts of a conversation between Larry Benz, PT at MyPhysicalTherapySpace.com and Tim Richardson, PT of PhysicalTherapyDiagnosis.com about so-called 'below cost' reimbursement rates.
The first installment is Larry's link (above), to which I have responded on his blog.
His reply is next...
From the original post on MyPhysicalTherapySpace.com Larry writes the following...
Just trying to understand your perspective on the economics of this (physical therapy clinics accepting low reimbursement rates).
Agree with you on value.
It is impossible to do any delivery irrespective of financial viability.
Cannot understand how taking contracts below Medicare rates is fiscally responsible.
It is that type of financial naiveté that has led PT's to take rates at $40 per visit enacting the never ending limbo negotiations that occur ("how low can you go")."
To which I responded:
I guess it depends on your size.
A small practice PT has better things to do with his time than treat patients for $40/visit (play with kids, fish, sleep).
A large PT practice with large fixed costs has to keep the dollars rolling in.
Any amount over your variable cost per visit is profit.
It's the same model the airlines use.
Ask you seat partner next time you fly...
"How much did you pay for your seat?"
If his is less than yours - why?
If yours is less than his - why?
The variable cost to transport one additional passenger is the cost of a bag of peanuts.
The rest is profit.
Same with PT.
Read this article. I use PT specific examples with graphs and charts.
'Stay Small and Make Big Profits' (August 2007 PT Products Online)